The number of off the plan apartments due to complete and settle over the next 24 months has hit record highs in Australia's capitals. With all the major Australian bank refusing to lend to overseas investors, many of the foreign investors will not make good on their purchases and settle with the developer.
The apartment supply levels should be organic to the local market demand. The apartment levels have been falsely increased to cater to the spin masters selling CBD apartments to uninformed Asian investors and, property developers taking advantage of the false (none organic) market demand.
Date: May 13
Published by: Mortgagee Property Australia
Reporter: Scott O. Talbot
Category: Australian Real Estate
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Reported in the Australia Financial Review, May 12 2016 at 12:07 PM:
Brisbane, Melbourne face rising apartment settlement risk.
The number of new apartments due to settle over the next two years has hit record highs in Australia's capitals, raising the risk some buyers will not make good on their purchases. The volume of new apartments is approaching, and even exceeding, the average number of apartment sales overall in the past five years, on CoreLogic figures.
That creates a "big disconnect" in the market, said CoreLogic researcher Cameron Kusher, especially in the largest cities.
In Brisbane, the number of units due to settle in the next 12 months is now more than the average number of apartments, new and established, sold each year.
A higher proportion of off-the-plan buyers, roughly one in 20, walked away from their Melbourne apartment purchases in June, according to Maddocks.
The law firm processed over 800 apartments contracts in June and recorded that 5 per cent of deals did not settle. This compares with a historical average of about 3 per cent. Default rates were just 2 per cent between February and April, but volumes were lower.
Of those buyers who did not settle in June, roughly two-thirds were foreign-based. While still a small proportion of settlements, rising defaults indicate more purchasers are struggling to obtain financing following the major banks pulling back from lending to foreign buyers. The Australian Financial Review recently reported that private equity groups were stepping up to lend to developers and purchasers, albeit at higher interest rates. Lenders like Macquarie Bank have added to the finance squeeze by restricting their lending in high-density suburbs including the Melbourne CBD and Docklands.